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ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION
NEWS: August 4, 2016 NEWS is brought to you by AFSPA Endorsed SUPPLIERS |
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How New Rules Could Reshape The Payday Loan Industry. by Knowledge Wharton
Wharton's Jeremy Tobacman and Ohio State's Creola Johnson discuss proposed changes to the rules governing payday loans.
The payday loan industry, long criticized for its predatory tactics targeting desperate consumers, is under new scrutiny by the federal government. The Consumer Financial Protection Bureau has proposed regulations to tighten several loopholes that are exploited by payday lenders and to curb some the issues with repayment of the loans.
In many cases, consumers are borrowing money against their paychecks and expected to pay back the loan within two weeks, along with a hefty interest payment. Jeremy Tobacman, a Wharton professor of business economics and public policy, and Creola Johnson, a law professor at The Ohio State University, take a look at the proposed changes and discuss whether they will have a lasting impact. They discussed the topic recently on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
An edited transcript of the conversation follows.
Knowledge@Wharton: What's the most importance piece of these new rules?
Jeremy Tobacman: The central feature of the new rules is an ability to repay requirement. The typical model in the past for the industry has been to earn a lot of money off a sequence of finance charges. As a result, the underwriting procedures that they used were not geared towards trying to detect which borrowers would be likely to be able to repay the loans in full at their first due date.
Creola Johnson: There's a section in the proposed rules that deals with attempts by payday lenders to change what they're doing - what I call the chameleon. For example, in Ohio, a payday lending statute was passed to curb payday lending. Ohio has a Second Mortgage Loan Act that payday lenders got licenses to operate under. Most payday lending customers don't own their home, but because Ohio law didn't specifically require a mortgage under the Second Mortgage Loan Act, payday lenders started getting licenses to operate under that pre-existing law so that they could continue to issue triple-digit interest rate loans.
The Consumer Financial Protection Bureau's new rule would then say any artifice, device, shenanigans to evade the rules, you would still be covered. In other words, the CFPB is saying we're looking to the substance of what's going on, not to some way that you've tweaked the transaction to try to pretend like you're not issuing payday loans.
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The
"Credit Strengthens Communities"
website enables
Payday Loan CUSTOMERS AND SUPPORTERS
to submit a letter to the
CFPB
and voice their concerns
about its proposed rule!
Protect Your Right to Short-Term Credit
Click Below
There are three specific things you can do now through September 14th (the last day of the comment period).
1. Send an email to your customers & friends
2. Post a link to the 'Credit Strengthens Communities' site on your company website
3. Share via your company's social media platforms
When a customer visits the site, a video plays highlighting the issue: new federal regulations are being considered that could eliminate your access to short-term credit. Against a backdrop of multimedia graphics and illustrations, the actress explains how customers can act now to tell the CFPB,
"Don't take my credit away."
Customers can view the form letter on the site, then simply click and sign, and the letter will be emailed with the docket number to the address that the CFPB has designated for comments to the rule: FederalRegisterComments@cfpb.gov. The letters that are sent to the CFPB will also be batched and shared with the customer's respective members of Congress.
Contact Us
CFSA is available to assist your company with conducting this outreach to your customers. Please feel free to contact me at acantu@cfsaa.com
or
703.842.2092 (direct)
, or have someone from your team reach out, should you have any questions or need additional support.
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For many, new rules may limit access to credit - and that's a good thing by Michelle Singletary
Despite all it accomplished in its first five years, the Consumer Financial Protection Bureau has its detractors.
The new Republican Party platform calls the CFPB a "rogue agency" and claims that "its one-size-fits-all approach to every issue threatens the diversity of the country's financial system."
Other critics contend that the consumer watchdog's enforcement actions and penalties are limiting people's access to certain financial products, mainly credit.
On that last point, the opponents are right. The CFPB is working on various rules that could curb access to money for many borrowers. It is finally focusing its enforcement powers on three key areas: arbitration clauses, payday lending and debt collection.
Arbitration clauses. The CFPB was charged by Congress to study the use of mandatory arbitration clauses in consumer financial markets. And in May, it announced that it was proposing rules that would prohibit these clauses.
We as consumers are constantly signing away our rights to sue as a class, thanks to clauses buried in service or product agreements requiring arbitration to settle disputes.
Tort reformists hate that the CFPB is going after arbitration. Plaintiff lawyers will end up the winners, they contend, and consumers will have to pay more for credit products.
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A public comment period has begun and will continue through September 14th.
Our goal is to generate as many different comment letters from our member companies, including you, your employees, business associates, contacts and customers.
We need to count on you to get involved to protect
your business,
your customers, and our industry.
We would like to send you a "FIGHT BACK PACKET" with information about the CFPB's comment period and how to send a letter to the regulators in Washington to prevent this rule from harming your businesses and denying your customers access to credit.
Get involved and help change the rule!
We will provide you with important information about the CFPB proposed rule and other ways to get involved, including webinars exclusively for CFSA members.
Call us toll-free at
1.888.544.2313
for more information
or to get your
"
FIGHT BACK PACKET
"
or
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Financial Stress - Serious Effects On Employees And Employers
by Financial Finesse
Key findings from the study were:
Financial stress has negative effects on employees, which is costing their employers. Here's a link to an infographic summarizing these effects: See below.
Cash management is the primary underlying factor in determining an employee's financial stress level. Employees who have manageable financial stress generally exercise good money management behaviors, with most having a strong financial foundation in place to achieve longer-term financial goals. Unmanageable stress levels, however, reflect a sense that one's finances are out of control, and that there is little hope for turning things around. Generally, these are the employees who are living paycheck to paycheck, with expenses exceeding their incomes and/or with large debt balances and no emergency savings.
Women's stress levels seem to be impacted more than men's by the presence of minor children in the household. Eleven percent of women with minor children reported having overwhelming levels of stress, compared to only 6 percent without children. Men's stress levels seem to not be significantly impacted by the presence of minor children, as only 6 percent of men with children in their household reported overwhelming levels of financial stress, compared to 4 percent of men without children.
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Which Way Will The Unbanked Pendulum Swing?
When taken on a global scale, the access to mainstream (bank-backed) financial services and products in the United States is impressive. Worldwide, 38 percent of the population is considered unbanked; that's about 2 billion people. In the U.S. on the other hand - based on the most recently available data - the vast, vast majority of citizens have access to at least a checking account.
To be more specific, 92.3 percent of Americans have a bank account. On the one hand, that speaks to the access and availability of products that fit a range of needs - but it also casts a shadow over the issues of the unbanked in the United States. The picture, admittedly, is far better that the picture in the rest of the world.
But the fact remains that 7.7 of the population does not have a bank account - which is roughly 10 million households nationwide. Those households - according to the FDIC's 2013 data - are more likely to be low income, more likely to have suffered a recent economic shock and more likely to be hit by high costs when attempting to access their funds.
Moreover, if one looks for consumers who are underbanked - those with regular deposit accounts, but without easy access to low-cost mainstream credit and lending products - the figures appear far worse. That brings the total number of unbanked households to about 20 percent of American households - or one out of every five households.
Read the story at PYMNTS.COM
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Financial Stress Has Toxic Effects on Employees
One financial factor is key in determining an employee's financial stress level, Financial Finesse says
U.S. workers who have problems managing their day-to-day finances are more likely to experience unmanageable financial stress than those who have a handle on their finances.
That's among the findings in the annual "Financial Stress Research" study from El Segundo, California-based Financial Finesse, which found that cash management is a primary underlying factor in determining an employee's financial stress level.
Most employees, according to the study, continue to worry about their personal finances, with 25% of employees who took a financial wellness assessment in 2015 indicating high or overwhelming financial stress. Approximately a third were assessed as vulnerable to living beyond their means and having serious debt.
Employees suffering from unmanageable stress levels are generally the ones living paycheck to paycheck, with expenses exceeding their incomes and/or with large debt balances and no emergency savings. Just 36% of these have a handle on their cash flow, while only 16% have an emergency fund and 67% pay their bills on time.
Why should this worry employers? The stress employees feel translates to employers in terms of presenteeism, absenteeism and increased healthcare costs. For one thing, 60% of employees are losing sleep over their financial situations, resulting in a loss of 11.3 days of productivity per year.
Read the entire story at THINKADVISOR
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If payday loans can be cheaper than unarranged overdraft borrowing what does it mean for banks?
Ask people which is the more expensive way of borrowing £100 - a payday loan or going overdrawn at their bank and most would probably say the payday loan. People's perception of payday lenders is one of high interest rates and fees. They're seen as a prohibitively expensive option.
So it will surprise many to learn that borrowing money on an unarranged overdraft can be more costly than a payday loan, according to consumer group Which?
The charge for a £100 payday loan over 28 days has been capped at £22.40 since January 2015. Dipping into an unarranged overdraft for the same amount and period can cost up to £90.
Customers can access short-term funds more economically than that from their bank, of course. Banks point out, not unreasonably, that they offer loan services - including arranged overdrafts - that are better for customers.
Read the entire article at FINEXTRA
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ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION
AFSPA helps our members grow their Alternative Financial Services business by providing them with the best information, research, data, support, relationships and by vetting and presenting the best available product and service providers for the Alternative Financial Services Industry.
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dan@afspassociation.com
www.afspassociation.com |
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